Local government pension

Pigeon007

I have a Local government pension which I intend to take when I reach 60 next year which is the earliest I can take it with no decrease in benefits. On figures supplied I will receive a tax free lump sum of circa £70000 and a yearly pension of circa £10500. Instead of receiving the yearly pension how do I proceed if I want to withdraw the full value of the pension as a lump sum ?

p00hsticks

Pigeon007 wrote: »

I have a Local government pension which I intend to take when I reach 60 next year which is the earliest I can take it with no decrease in benefits. On figures supplied I will receive a tax free lump sum of circa £70000 and a yearly pension of circa £10500. Instead of receiving the yearly pension how do I proceed if I want to withdraw the full value of the pension as a lump sum ?

I'm not an expert but I'd be very surprised if you were to be allowed to do this. Its a Defined Benefit pension so there is no 'pot' that you can withdraw

chiefie

The only option I believe is if you want all of it is to request a transfer value and get an IFA involved. I would estimate the transfer value to be in excess of £300,000 (I requested one recently).

hyubh

Pigeon007 wrote: »

Instead of receiving the yearly pension how do I proceed if I want to withdraw the full value of the pension as a lump sum ?

As others have said, this would require transferring out to a DC arrangement. I'm struggling to see how doing such a thing would be in your best interests however - you will need to take financial advice, find a provider that would accept the transfer, take a big tax hit... and of course lose a pension of £10,500 pa that goes up by CPI every year. Is this to clear debt, or something else...?

On a more practical level, you'd also need to confirm that for transferring out purposes your normal retirement age is 65 (there is a statutory right to a transfer out only if you are at least a year before NRA).

saver861

Pigeon007 wrote: »

I have a Local government pension which I intend to take when I reach 60 next year which is the earliest I can take it with no decrease in benefits. On figures supplied I will receive a tax free lump sum of circa £70000 and a yearly pension of circa £10500. Instead of receiving the yearly pension how do I proceed if I want to withdraw the full value of the pension as a lump sum ?

You can't within the LGPS scheme, if that is what you were intending. You can convert a certain amount of it into a lump sum, usually at a ratio of 12:1. However, there are limits on how much of the overall pension you can convert.

You don't say why you want to do this and usually it is not a good idea unless there are health issues etc. On the 12:1 ratio, you would be losing out after 12 or so years so if you are only 60 and in reasonably good health the stats say you will be around for about another 26 years or so!!

dunstonh

nstead of receiving the yearly pension how do I proceed if I want to withdraw the full value of the pension as a lump sum ?

Almost certainly a transaction that would not be in your best interests.

1 - LGPS does not support full fund withdrawal as there is no fund. So, it would be required to be transferred to a money purchase pension to create a fund.
2 - The cost of transferring will not be cheap. Its a very high risk transaction that an IFA is unlikely to recommend and will usually price that risk in accordingly.
3 - Your tax bill will be massive. You will lose almost half your value in tax.

Your breakeven point for taking the lump sum vs taking the income is likely to be around 10-15 years. On a life expectancy average of 27 years (from 60), taking the option that is likely to be worse off within 10-15 years seems like a very silly decision (that is probably being generous on the timescale too as the amount of tax you would pay on full fund withdrawal is wiping out so much - it could be under 10 years).

Superscrooge

One of the perks of working in the public sector is that you get a good pension. Often referred to in the media as 'Gold Plated Final Salary Pension Schemes'.

I would be surprised if any financial advisor thought it was sensible to give it up.